Cash Flow Notes For Sale: Are They A Safe Investment?

Cash flow notes for sale cover a variety of opportunities for both buyers and sellers. Currently, there are more than 60 types of cash flow notes. The most common include real estate notes, land contracts, business notes, structured settlements, and seller’s return notes.

Cash flow notes used to document real estate transactions are secured by tangible assets. Almost any type of property can be used as collateral, including single and multi-unit properties, mobile or manufactured homes, and condominiums. Investing in real estate notes can be risky. Experts recommend consulting with a real estate attorney to ensure the proper legal documents are executed. Considering today’s recessionary economy and housing crisis, special attention should be paid when investing in real estate notes.

On the other hand, keep in mind that the real estate sector has always rebounded from previous economic shocks. Investors willing to wait could generate a great return on their investment. Trade notes are another popular option among investors. The top three cash flow notes in the business sector include factoring, purchase order financing, and seller’s pass-through financing. Each uses business assets as collateral for financing.

With factoring, accounts receivable owed to the business are used to secure the promissory note. Accounts receivable are sold to a funding source, known as the ‘Factor’. The Factor can be a private investor, a group of investors, a bank or other credit institution. Purchase order financing uses the same principles as factoring. The only difference is that the next buy orders are used as collateral. Seller transfer financing is quickly moving to the forefront of cash flow notes for sale. The seller’s transfer can be used to finance real estate or commercial transactions. With the current credit crunch, more investors, business owners, and property owners are turning to owner financing. Seller’s conveyance goes by many names, including “owner take” and “owner financing.”

In essence, the owner brings all or part of the financing to close the deal. Some owners finance 20 percent of the purchase price, while others finance 100 percent of the deal. Seller’s return notes can be sold to investors. For example, Sam Smith owns a business valued at $1 million. He sells the business to Joe Jones, taking 50 percent of the promissory note, or $500,000. Sam Smith can then sell the note to a private investor and assign payment rights to all or part of the note. Most likely, Sam will not receive 100 percent of the value of the note. However, he will have access to a lump sum of cash instead of waiting years for repayment. Real estate investors could offer Sam $750,000 for his $1 million cash flow note. Investors now bear the risk and must collect the payments. They must also expect the note to be repaid unless they sell it to another investor; which is unlikely. In the end, the investors will earn a profit of $250,000, plus the value of any new property.

Many investors appreciate the value of structured settlement cash flow notes. Structured settlements are used to compensate people who have been injured due to negligence, as well as lottery jackpot winners. Structured settlements are paid for through annuity payments backed by life insurance companies. Annuitants (individuals who receive payments) can sell all or part of their structured settlement to an investor. In order to sell annuity payments, Annuitants must receive authorization from the court.

A genuine need to sell the structured settlement must be proven before the judge. Structured settlements are generally arranged to provide people with a steady flow of cash to pay for medical expenses and healthcare. Judges will generally not approve the sale of structured settlements if they believe it will cause financial harm to the annuity recipient. Buying and selling cash flow notes can be beneficial to both parties. However, it is imperative to work with trusted professionals and obtain the proper legal documentation. Doing so will help ensure profitable investment opportunities.